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Why China isn’t about to save Thailand’s economy yet
The recent surge of optimism that the world economy would have a soft landing is largely due to China’s decision to ditch its “zero-Covid” policy. Clearly, the reopening has lessened the risks and uncertainty surrounding the outlook.
China’s real GDP increased by 3% overall in 2022 from the previous year, which was the second-worst performance since 1976, the final year of the Cultural Revolution (the worst being 2020, when the pandemic began).
The earlier and faster than expected ending of zero-Covid restrictions in China bodes well for the global economy and adds to the recent run of positive news. But how significant will the spillovers from China’s policy likely be for Thailand and the global economy?
At Davos, Chinese Vice Premier Liu He held a private meeting with leading Western business leaders. One leader quoted Liu as saying that “China is back.” There is a widespread expectation that, once the current outbreak of COVID-19 in China recedes, the Chinese economy will accelerate significantly.
Serious headwinds for China
However, there are serious headwinds for China that could restrain the recovery. These include the troubled property market, weakness of external demand, poor demographics, and efforts by Western governments to restrict trade and cross-border capital flows with China, according to a Deloitte analysis.
Stronger service demand will have some beneficial spillover effects on the rest of the world, especially in terms of outbound tourism, but Asian tourist destinations like Thailand and Japan are expected to benefit more than manufacturing hubs and commodities producers. However, given the slow global growth, tourism isn’t anticipated to boost the economy quickly enough.
Prior to the pandemic, 28% of Thailand’s 40 million tourists were from China. While private consumption makes about 50% of GDP, tourism accounts for 12% of the economy and a fifth of jobs.
We’re sceptical that China will save the world from recession, and we don’t think the likely increase in Chinese demand justifies recent moves in prices for metals and other commodities.
Ben May, Director of Global Macro Research at Oxford Economics
Moreover, despite being beneficial to global GDP, the reopening of China could result in a rise in global inflation, according to Christine Lagarde, president of the European Central Bank (ECB). According to her, “the change of this Covid policy will revive the economy. That is positive for the rest of the world, but there will be more inflationary pressure.”
Overall, China’s exit from its zero-Covid policy is positive news for the world economy, but we don’t think it is a gamechanger. China’s policy shift is unlikely to prevent the global economy falling into recession, while at the same time it’s unlikely to push inflation around the world onto a significantly different path.
Ben May, Director of Global Macro Research at Oxford Economics
Thailand, whose economy is strongly reliant on tourism, lost out on tens of billions of dollars’ worth of Chinese visitor spending during the past three years.
In 2019, Thailand welcomed 11.5 million Chinese visitors out of a total of 39 million international arrivals, of which about 4.3 million were from group travel. Tourism receipts from Chinese travelers represented 531 billion bahts in 2019, a significant part of the 1.9 trillion total.
As a result of wooing visitors with longer-term visas, the kingdom is thought to have received at least 11.15 million foreign tourists in the previous year, above the initial estimate of 10 million, and has subsequently raised its target to 25 million visitors for 2023.
25 million foreign visitors this year
Thailand, one of Asia’s most popular tourist destinations, is expected to receive at least 5 million Chinese tourists and a total of 25 million foreign visitors this year, providing a much-needed boost to an economy severely impacted by the global pandemic.
Bookings for international travel for the Jan. 21–27 Lunar New Year holidays increased more than fivefold, according to Trip.com, a significant provider of travel services. However, that was an improvement from the previous year, when China’s borders were closed to the majority of foreigners and subsequently prevented Chinese citizens from traveling abroad.
According to the Chiang Mai office of the Tourism Authority, the city, which is well-known for its significant reliance on tourism, will welcome back nearly 600,000 Chinese visitors this year who will spend about $230 million, or roughly half of the total from 2019.
However, just a handful of Chinese visitors were posing for photos and basking in the sun this week in the market and plazas near Chiang Mai’s ancient Tha Phae Gate, one of many tourist hotspots still waiting for millions of Chinese travelers to return, according to an AP report.
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